Playbooks / Property
Rent versus buy
The rule
"Rent is money down the drain" is the most expensive sentence in personal finance, because the sentence that answers it is not "so buy" but "so is most of a mortgage payment".
A mortgage payment splits into two parts. The principal repayment is a transfer from your bank account to your own equity. You still have that money, it just lives in a wall now. The interest is gone. So is the service charge, so is maintenance, so is the property tax where one exists, and so is the return your deposit would have earned had it stayed invested. Those are the unrecoverable costs of owning, and they are what you compare against rent.
The five percent rule
Ben Felix's formulation, which has become the standard shorthand, adds three components:
- Maintenance, about one percent of property value a year.
- Property tax, about one percent in a typical developed market.
- Cost of capital, about three percent, being the spread between what your money earns in the market and what it earns in a house.
Total: about five percent of the property value a year. If annual rent for an equivalent home is below five percent of the price of buying it, renting is cheaper on cash flow. Above it, owning is.
Recalibrating for the Gulf
The rule was written for markets with annual property tax. The UAE does not have one, which sounds like it removes a full percentage point. It largely does not, because the service charge does that work instead.
Run it on a one and a half million dirham apartment:
| Component | Annual cost | As a share of value |
|---|---|---|
| Property tax | 0 | 0.00% |
| Service charge and maintenance | 20,000 | 1.33% |
| Interest on 75% debt at 4.5% | 50,625 | 3.38% |
| Opportunity cost on 25% deposit at 6% | 22,500 | 1.50% |
| Total unrecoverable | 93,125 | 6.21% |
Six point two percent, not five. The zero property tax is more than absorbed by service charges that run well above the one percent maintenance assumption, and by a cost of capital that is high while rates are where they are. If the same apartment rents for ninety thousand a year, renting is marginally cheaper on cash flow, and the case for buying has to be made on capital growth, on the Golden Visa, or on wanting to own the place you live in. All three are legitimate. None of them is a cash flow argument, and it is worth being honest about which argument you are making.
The part everyone skips
The round trip transaction cost. Buying and selling in Dubai costs roughly eight to ten percent of the value once you count the transfer fee, both commissions, and the exit. How much of the exit half of that is negotiable is its own framework. That cost does not care how long you stay. Spread over two years it is four to five percent a year and it dominates everything else on this page. Spread over ten it is under one percent and it barely registers.
That is why the break even hold period is the real output of this calculation. Not "should I buy", but "how long do I have to stay for buying to have been worth it". If the honest answer to how long you will stay is shorter than that number, the decision is made. The price to rent ratio is the cheaper first pass at the same question, and it is the right thing to look at before running any of this.
The arithmetic
Where it breaks
- It is exquisitely sensitive to the capital growth assumption, which is the one input nobody can know. Move that slider and watch the answer flip. Any buying case that only works at an optimistic growth rate is a bet.
- It compares a home you would rent with a home you would buy, and people rarely buy what they would rent. If the purchase is a bigger, better property, part of the extra cost is consumption, not investment, and should be named as such.
- It ignores rent control. In Dubai the RERA index caps increases on a sitting tenant, which makes renting cheaper over a long tenancy than a naive rent growth assumption suggests.
- It ignores the value of optionality. The ability to leave a city in thirty days is worth real money to an expatriate on a two year contract, and it does not appear anywhere in the arithmetic.
- It ignores residency. In the UAE a two million dirham purchase can carry a Golden Visa. That has a value which is personal, sometimes large, and impossible to put in this table.
When to use it
Before your first purchase in any market, and again whenever your expected time in a city changes. Run the break even hold period first and check it against how long you honestly expect to stay.
The Rent versus Buy does this arithmetic for you, in your currency, in about thirty seconds.
Open the calculatorSources
- PWL Capital, rent or own your home, the 5% rule
- Dubai rental index 2026, how RERA calculates rent increases
- Dubai fees and charges guide
Last reviewed . Commercial relationship disclosure: the author works in Dubai real estate brokerage. See the disclosure standards. Disclosure standards.